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-   -   How hard is it to RE at the market top (2014)? (http://www.early-retirement.org/forums/f28/how-hard-is-it-to-re-at-the-market-top-2014-a-72351.html)

heeyy_joe 06-09-2014 03:45 PM

Retire with at least a two year cash cushion and sleep well at night. Market top smarket-top.

Moemg 06-09-2014 03:54 PM

I retired in Jan. 2008 and proceeded to lose 30% of my nest egg . It was an awful feeling. I seriously considered returning to work . I hung in there and after a few dumb moves my nest egg survived & bounced back to much more than the original value. The good thing is I now feel stronger for future downturns . I do have a survivor pension so that made cutting back manageable . I also have learned to keep several years in cash .

DFW_M5 06-09-2014 04:05 PM

Quote:

Originally Posted by nash031 (Post 1457994)
The effects of a market downturn in the first year or few years of the withdrawal phase can be marked, to the point that in some scenarios, your portfolio never recovers. It makes sense to me that if you RE at market bottom and still have a high success chance, you're good to go, whereas if you retire at market high, and undergo a 10-25-40% correction, you could be screwed. The key in that case is to have enough to absorb the hit.

Tops or bottoms are never known until after the fact, so this becomes plain old guessing. Again, have a good allocation and safety net to ride out a potential bear market.

nun 06-09-2014 04:37 PM

If a 25% drop in stocks would destroy your ER plans then you either spend too much, haven't saved enough or have the wrong AA.

I retired in March 2014 at age 52.5 and I made sure I had enough in cash and my 457 Stable Value account to fully fund my expenses until 59.5. I figure that 7 years will be enough time to recover from any nasty down turns. Over the last 3 months my net worth is up $40k; this ER stuff is easy;)

rodi 06-09-2014 05:02 PM

I'm hoping we're not at market top - I gave notice today and retirement starts in 2 weeks.
What gives me optimism is that I've run every calculator and can maintain my current (not so lavish) lifestyle with 100% success from the calculators.

Now if the market collapses more than it has in the past - or we have another long downturn - I'll probably cut back my spending, and consider a part time job. My grandmother did just that in the 70's. My grandfather had retired with a pension - and the 70's inflation ate into their income... she became a "shop girl" part time at a high end gift shop in La Jolla. I am not averse to taking a part time job if the situation becomes dire. I don't think it will come to that.

But if the market collapses, I'm still retiring. I'll just remain flexible to all my options - reducing spending, adding income streams, etc.

robnplunder 06-09-2014 05:04 PM

Quote:

Originally Posted by rodi (Post 1458034)
I'm hoping we're not at market top - I gave notice today and retirement starts in 2 weeks.
What gives me optimism is that I've run every calculator and can maintain my current (not so lavish) lifestyle with 100% success from the calculators.

Now if the market collapses more than it has in the past - or we have another long downturn - I'll probably cut back my spending, and consider a part time job. My grandmother did just that in the 70's. My grandfather had retired with a pension - and the 70's inflation ate into their income... she became a "shop girl" part time at a high end gift shop in La Jolla. I am not averse to taking a part time job if the situation becomes dire. I don't think it will come to that.

But if the market collapses, I'm still retiring. I'll just remain flexible to all my options - reducing spending, adding income streams, etc.

Good luck and best wishes to you! I will be following your footsteps soon (this or next year will likely be my last year at work, market top or not).

Totoro 06-09-2014 06:07 PM

Quote:

Originally Posted by robnplunder (Post 1457996)
This was the impetus for starting this post. Another way to ask the same question is, am I fooling myself that I can RE now when much of my confidence (and increased NW) is outcome of the recent 5 year Bull run?

I think we've been posting in the same threads the last few days :)

I'm in a similar situation (WR below 4%) and have the same challenge, interesting to read perspectives from others who took the plunge already!

As an extra, I currently have 40% in equities which I want to move to 85% but for the same reason I'm postponing that too. Happy with the overall reduced return in the mean time as long as I have an income, but in FIRE I want to have it at 85%.

I'll probably work a year or two more, change career again. Most jobs I found can be tolerated for at least a year while there is novelty in them :laugh:

nash031 06-09-2014 06:20 PM

I'm targeting Jan 1, 2020. If the bull run continues until then, and I'm just at my number, I won't feel comfortable. If I am, say 10 or 20% over it, I would. So perhaps the suggestion to take 20% right off the top of your stash and run FIRECalc is a good one...?

In my personal case, DW wants to keep working anyway, so that's my backup plan. ;D

haha 06-09-2014 06:29 PM

How hard is it to RE at the market top (2014)?

Not hard at all. Other than pensioners, most people retire during high markets, where net worth, quotes and confidence are also high. Like several people have pointed out, we can't say that it is a market top until the market declines meaningfully. We can say without fear of being wrong, that the market is quite high.

Ha

sanfanciscotreat 06-09-2014 06:32 PM

left the office in 2010 when I thought I had enough $$$. Market and company stock have gone up significantly since then and I have a big cushion especially since we have spent so much on travel, moving and upgrading our new home in the past six months. A lot of room to spend less, though my legal advisor was greatly surprised when he saw our NW and thinks we are not spending enough.

ejman 06-09-2014 06:42 PM

Quote:

Originally Posted by robnplunder (Post 1457904)
Currently doing OMY to pad my RE fund. I should be able to RE now but the current market got me concerned. It'd give me a lot of stress if RE now and market goes into a bear market run. For those of you who RE'd at (then) the top of the market, how was it? Were you concerned about market turning south? What strategy did you use to safeguard potential market downturn?

Sounds to me like the perfect time to ER and rebalance to an AA you feel comfortable with including a significant cash reserve to tide you over wtshtf as it surely will sometime along the way. I ER'd December 2002, the end of a three year bear market as it turned out but I didn't know that at the time. During the prior three years I re positioned my AA to my sleep well point (50/50) so the 2000-2002 bear market didn't hurt as much and I felt comfortable that I could make it. And so it has been so far...

springnr 06-09-2014 07:49 PM

Upon bailing into retirement earlier this year my AA ended up such that the fixed income could carry me for quite a while.
AKA - How I became a dirty market timer.

It helped ease the transition, the 40% AA for equities will move higher over the next couple years. Any significant pullbacks/corrections will make good re-balancing points. Meanwhile I miss out on some gains, not great but works for me.

CaliforniaMan 06-09-2014 07:59 PM

Quote:

Originally Posted by nash031 (Post 1457994)
The effects of a market downturn in the first year or few years of the withdrawal phase can be marked, to the point that in some scenarios, your portfolio never recovers. It makes sense to me that if you RE at market bottom and still have a high success chance, you're good to go, whereas if you retire at market high, and undergo a 10-25-40% correction, you could be screwed. The key in that case is to have enough to absorb the hit.

I agree that the key is to have enough (relatively small WR) to absorb the hit. But how would one ever know if they were retiring into a market bottom or market top? Whether the market had risen 25% or fallen 25% before retirement, it could still fall 25% the next year and then continue falling.

For me to be on the "safe" side, I assume a 10% decline in stocks and a 5% decline in bonds even before calculating the withdrawal. I also test for a 30% decline and see if my WR is still livable. But in the end who knows? And this is my first year of retirement so for me it's all theoretical at this point anyway.

ERD50 06-09-2014 08:02 PM

Quote:

Originally Posted by robnplunder (Post 1457922)
I've never learned to swim :facepalm:.

Pb4uski: I get 95% success from FireCalc but with Bernecki box checked. However, I have some major expenses (entertainment, downsizing) I can shed if faced with bear market.

This is why I like to shoot for 100% success in FIRECalc , w/o any adjustments. That means your retirement would have survived at any point in history, and those failures will occur at market peaks. So when you retire should have no major concern with timing (assuming your future is not worse than the worst of the past).

You could look at reducing some of the discretionary if the market tanks, but I think people generally underestimate how much an after-the-fact adjustment can make. You can investigate this by entering an offsetting income in year five (or whatever), and see what that does to your success rate.

-ERD50

audreyh1 06-09-2014 08:12 PM

Quote:

Originally Posted by Dd852 (Post 1457974)
My "insurance" is that my cash+fixed income allocation is 10 years of expenses - I figure if I'm not forced to sell equities I can ride out most traumatic scenarios.

Good point - that is my minimum allocation to cash+equities myself: another statistic I compute on my retirement portfolio along with the current AA.

Quote:

Originally Posted by heeyy_joe (Post 1457997)
Retire with at least a two year cash cushion and sleep well at night. Market top smarket-top.

We also did this - in addition to the retirement portfolio.

Belt and suspenders

tuixiu 06-09-2014 08:44 PM

Quote:

Originally Posted by robnplunder (Post 1457922)
I get 95% success from FireCalc but with Bernecki box checked.

Ooh I used to love the Bernecki box, man did that make everything so much easier. I finally stopped checking it a couple years ago to bite the bullet on a fixed expense model, figure if Ty was right and I'm just sitting there drooling instead of spending then it is a bonus and I'll buy the best gold-plated drool cup I can.

nash031 06-09-2014 09:08 PM

Quote:

Originally Posted by CaliforniaMan (Post 1458103)
I agree that the key is to have enough (relatively small WR) to absorb the hit. But how would one ever know if they were retiring into a market bottom or market top? Whether the market had risen 25% or fallen 25% before retirement, it could still fall 25% the next year and then continue falling.

For me to be on the "safe" side, I assume a 10% decline in stocks and a 5% decline in bonds even before calculating the withdrawal. I also test for a 30% decline and see if my WR is still livable. But in the end who knows? And this is my first year of retirement so for me it's all theoretical at this point anyway.

Both you and rob pointed this out: as I said in another post this thread, we'll only know if it's a high (or a low) after the fact. So I agree that having some % (whatever you're comfortable with) over your "number" is the way to go. If you think you need $2M to get by, get to $2.5M and call it. (And enjoy that OMY syndrome!!)

tuixiu 06-09-2014 10:17 PM

Quote:

Originally Posted by nash031 (Post 1458123)
If you think you need $2M to get by, get to $2.5M and call it. (And enjoy that OMY syndrome!!)

Throwing another half million into the pot might take enough years to take more time than some are willing to take. If I was 50 years old and firecalc said I had finally reached 100% success with my 2 million portfolio, I sure wouldn't be pleased thinking I might have to work until I was 54-55 to get it to 2.5 million.

I'd much rather be doing like someone mentioned, figure out how much I could reasonably live comfortably on by reducing my spending if early bumps in stock market road.

Katsmeow 06-09-2014 10:26 PM

I believe in the Bernicke concept but I think it is safer not to use that method to calculate success chances

photoguy 06-09-2014 11:54 PM

Quote:

Originally Posted by robnplunder (Post 1457904)
Currently doing OMY to pad my RE fund. I should be able to RE now but the current market got me concerned. It'd give me a lot of stress if RE now and market goes into a bear market run. For those of you who RE'd at (then) the top of the market, how was it? Were you concerned about market turning south? What strategy did you use to safeguard potential market downturn?

I ER'd this year and I'm very concerned with a possible bear market or entering a long period of stagnant returns. To combat this I've planned for under 3% WR (ERD's criteria of 100% in FIRECALC yields roughly 3.5% for the default portfolio) and also have 10+ years in fixed income (includes cash). Basically this is layering enough extra safety factors such that if we enter a bear market I feel that we would be ok.

A few other posters have mentioned cutting spending. One thought I've had is that since I will have control of income (due to roth conversion), I can control the amount of ACA subsidy. Given the amount we've budgeted for health care, this could be a substantial decrease in expenses (at the cost of spending down taxable faster than tax deferred accounts).

Currently we are renting/traveling. But a deep bear market will likely result in depressed real estate. So if this happens we could lock in housing expenses at a much lower cost than we are budgeting (for a future home purchase). Of course this requires adequate fixed income/cash reserves to be able to buy the home and last through the bear.


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